Taxation Freedom Day Bill

Robert Halfon Excerpts

Friday 25th November 2011 Commons Chamber

[Mr Hollobone]

Indeed. Before the U-turn the burden of taxation on the British economy went down but then, as we know, it all started to go wrong, and from 1973 to 1975—three calendar years, in effect—those 21 days were reversed and taxation freedom day went back up to 2 June. One of the major reasons for that was the very high price inflation of that period. The Government of the day did not re-index all the taxation allowances and there was a huge fiscal drag effect, taking people into high rates of income tax.

Taxation freedom day did not change much until 1978. Between 1978 and 1982, it moved by 24 days, from 27 May to an all-time peak, 20 June, in 1982. In that period we had the rapid appreciation of sterling, particularly against the dollar, there was the doubling of VAT from 8% to 15% in Geoffrey Howe’s first Budget, a huge collapse in gross domestic product—not as sharp a fall as we are currently experiencing, but nevertheless a very dramatic slow-down in the economy—and another period of high inflation fuelled, in part, by a second big rise in oil and petrol prices. That meant that in 1982 the average British taxpayer had to work for 172 days, with all their income for those 172 days going, in effect, to Her Majesty’s Government.

There then followed quite a long period, from 1982 to 1996, just before the end of the Conservative Government, when taxation freedom day fell back by 25 days, from 20 June to 26 May. In 1997, when Tony Blair came in, taxation freedom day started to rise once again. Interestingly—I hope that this will convince the two Opposition Members present that I am trying to be as politically neutral as possible—taxation freedom day in 1997, when Labour took office, and in 2010, when Labour left office, fell on exactly the same day: 27 May. It rose in the middle of that period to 4 June, an increase of nine days, but in other years it fell by three days.

[Robert Halfon (Harlow) (Con)]

I congratulate my hon. Friend on his excellent Bill. Despite what he has just said, does taxation freedom day not generally fall earlier under long periods of Conservative government than under periods of Labour government?

[Mr Hollobone]

I am most grateful for that penetrating intervention from my hon. Friend, who serves his constituents with great enthusiasm and ability. Although I would like to think that there is an obvious correlation, my honest answer is that it might not be as strong as we would like it to be. That reflects the overall bad picture of all modern Governments settling a burden of taxation on the economy that is rather higher than he or I would like. Although brave attempts have been made to reduce that burden, particularly by Conservative Governments, they have not always been successful as problems have got in the way. For example, the oil price crisis in the early 1970s and the big increase in trade union militancy blew the Conservative Government of the day off course, which meant that they had to increase the burden of taxation in response. Likewise, in the first years of the Thatcher Government the burden of taxation increased sharply. As I have said, between 1979 and 1982 taxation freedom day moved from 30 May to 20 June, which was a sharp ratcheting up.

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[Mr Hollobone]

I am most grateful for that intervention from my hon. Friend, who is a legend not only in his constituency, but in this place, precisely because of that sort of contribution. I also take it as a bid to serve on the Bill Committee. I for one would welcome that as an amendment that would improve the Bill, because I know that one of the major roles he performs in this place is providing helpful ideas to Members and the Government on how legislation might be improved, and what he suggests is one of the best examples I have heard. Like me, he believes that the burden of taxation in this country generally is too high and would like to see it fall. However, Members need not share our views to support the Bill. It is possible to be an enthusiast for more taxation to provide more public services and still to support the Bill. The Bill would make the burden of taxation transparent to everyone.

[Robert Halfon]

I hesitate to correct my hon. Friend, but it is possible to have more public services without necessarily increasing taxation.

[Mr Hollobone]

My hon. Friend is absolutely right. That is what Her Majesty’s Government are currently trying to do.

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[Mr Hollobone]

That is a very good suggestion, and yet another reason for Opposition Members to support the Bill today.

My Bill does not propose that taxation freedom day be a bank holiday. What it does propose is that, basically, Her Majesty’s Government make official recognition of what taxation freedom day does. In the Taxation (Information) Bill, the Conservative party Bill that was launched in the other place in 2003, Lord Saatchi suggested the following mechanism for calculating how taxation freedom day should be arrived at. He said that taxation freedom day is

“determined by taking total tax revenue, including direct and indirect taxes, local taxes, capital taxes and national insurance contributions as a percentage of total income”,

and that it is

“calculated as general government tax revenue as a proportion of net national income”. —[Official Report, House of Lords, 9 July 2003; Vol. 651, c. 380.]

Net national income differs from the more familiar gross domestic product, or GDP, in two ways: first, net national income adds in net property and the entrepreneurial income of UK citizens from abroad; and secondly, it subtracts capital consumption. Net national income is therefore smaller than GDP, making the ratio of tax revenue to net national income larger than that to GDP.

I do not particularly mind what mechanism the Office for National Statistics uses for calculating taxation freedom day, because there are all sorts of suggestions about how it be done, but whatever mechanism is used, it ought to be clearly explained and consistent year on year, with lots of backdated calculations—perhaps even to the start of the 20th century, as my hon. Friend the Member for Bury North suggests—so that we can track consistently how taxation freedom day has moved around. There we have an official Conservative party suggestion from 2003, however, and it is a helpful contribution to the idea of pushing this Bill forward.

None other than the current Chancellor, before he became Chancellor, has spoken about taxation freedom day on two occasions. First, interviewed by Polly Toynbee in The Guardian on 2 June 2006, he said:

“This Saturday—June 3—we celebrate Tax Freedom Day. That is the point in the year when people stop working for the chancellor and start earning for themselves.”

In 2006, according to this enlightened quotation, the then shadow Chancellor saw the value of taxation freedom day. I very much hope that now he is the actual Chancellor he can put his words into practice. On another occasion, when interviewed in 2007 about taxation freedom day having slipped to 1 June in 2007 from 27 May in 1997, he was quoted in the Daily Express as saying:

“Here’s the proof that Gordon Brown’s stealth taxes hit us every hour of the working day. Hard-working people hand their money over to the Chancellor and the tragedy is that they cannot trust him to spend it wisely.”

In his role as shadow Chancellor, my right hon. Friend the Member for Tatton (Mr Osborne), has on two occasions publicly backed the idea of taxation freedom day. That is extremely helpful, and I hope that point of view is now consistent with Her Majesty’s Treasury in its present form.

On 6 June—D-day—2000, Mr Deputy Speaker, none other than your boss, the Speaker, tabled a ten-minute rule Bill called the Taxation (Right to Know) Bill, which had three main elements. If I may quote Mr Speaker in his absence, he said:

“In my Bill, the Treasury is required to prepare and send to every household and business an annual statement of the rates of each tax and excise duty…My second proposal is that the proportion of the purchase price of key products that is represented by tax and excise duty should be publicly displayed on the bills that customers pay…My third suggestion is that each year the Treasury should publish an assessment of the merits of each tax, considering not only its yield but its administration cost, its compliance cost and its economic cost in terms of lost output and diminished competitiveness.”—[Official Report, 6 June 2000; Vol. 351, c. 175-176.]

In his remarks to the House, the right hon. Member for Buckingham (John Bercow) stressed that our taxation freedom day, which in 2000 was on 29 June, was no fewer than 20 days worse than in the United States, where it had fallen on 10 May. The Bill proposed by Mr Speaker—before he was Speaker—in 2000 and my Bill essentially try to do very similar things. We are trying to make the burden of taxation on every individual business and organisation in this land far more transparent so that taxpayers can understand how much of their money is going to the Government and what it is being spent on.

That drive for transparency is being promoted by all sorts of organisations, not least the TaxPayers Alliance, which, in a major tax transparency campaign, has launched a tax app. For those of us who are rather technologically challenged, that might not be immediately appealing, but that will not be so for enlightened individuals such as my hon. Friend the Economic Secretary, or even my hon. Friends the Members for Harlow (Robert Halfon), for Bury North, and for Shipley (Philip Davies), who are at the forefront of IT developments. The Tax Buster app for smartphones allows shoppers to find out how much they really pay when buying everyday items. With a few details about any particular purchase, it can calculate how much money from an item went on VAT and duties.

[Robert Halfon]

Can my hon. Friend confirm whether this app would be compatible with BlackBerrys?

[Mr Hollobone]

I am most grateful for that intervention. I think that the answer is yes. One would have to access the Tax Buster website to find out how to do so. I think that the app is available for all kinds of cellphone technology. I know that my hon. Friend has the very latest gadget.

When an individual puts into the app a few details about their purchase, it tells them how much they had to earn before they paid taxes to have enough money to buy the product. For example, 20 cigarettes that cost £6.49 would have cost £1.24 without indirect taxes. Paying the £6.49—I am looking at my hon. Friend the Member for Dover (Charlie Elphicke), who I believe might occasionally buy the odd cigarette—requires earnings of £11.35 before income and corporate taxes.

[Mr Hollobone]

I am most grateful for that helpful intervention.

My next point will be of interest to my hon. Friend the Member for Harlow. Filling the car with £60-worth of petrol would cost only £23.86 without indirect taxes. Paying that £60 requires £104.84 in earnings before income and corporate taxes. For higher rate taxpayers, the equivalent figure is £122.91.

[Robert Halfon]

I thank my hon. Friend for being so generous in giving way. Does he agree that if the Government do not raise fuel duty as planned in January, the day on which taxation freedom day falls will be much earlier?

[Mr Hollobone]

That is a very good point and the Economic Secretary has heard it. She will also have heard the voice of the House expressed only the other week in support of my hon. Friend’s motion. The burden of petrol taxation has got to such a level that it is probably constraining economic growth in an unacceptable way, at a time when growth from anywhere would be most grateful.

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[Mr David Nuttall (Bury North) (Con)]

As always, it is a great pleasure to follow my hon. Friend the Member for Shipley (Philip Davies), who has demonstrated the great need for this Bill. I start by congratulating my hon. Friend the Member for Kettering (Mr Hollobone) on preparing the Bill and bringing it before the House today. In his opening remarks, he said that he thought that this was a simple and straightforward measure and, of course, in many ways it is. I have a great deal of sympathy for the measure, and I would have thought that hon. Members on both sides of the House could agree on the issue of transparency on tax matters.

I start from the position of broadly supporting the principle of ensuring that taxpayers should be given clear information about the size of their tax burden. I was initially very encouraged that the Bill would go a long way towards improving the transparency of our tax system, but when I began to study the detail of the Bill and consider all the issues involved, I found that in many ways it is far from simple and straightforward. Indeed, this is a fiendishly complex matter, which is not as simple and straightforward as it may appear at first sight.

I wish to deal with several issues in my contribution, the first of which is why making the tax burden more transparent is so important. Taxation legislation is incredibly complex, covering a wide variety of taxes and duties. Indeed, it is worrying that the list is so long. Most people, when they hear the word tax, automatically think of income tax, but that is just one of several taxes with which the individual might be burdened. To income tax, we can add value added tax, national insurance, capital gains tax, stamp duty, fuel duty, alcohol duty, tobacco duty, air passenger duty, insurance premium tax, landfill tax, corporation tax, petroleum revenue tax, council tax, the climate change levy and the aggregates levy. Then, for anyone who has still managed to live frugally enough to be left with any assets after paying their way through life while paying all those taxes, subject to the various exemptions and the nil rate band, those assets are taxed again, with the imposition of the inheritance tax.

[Robert Halfon]

Is my hon. Friend not making the case for a flat tax?

[Mr Nuttall]

There is a great need for simplification of our tax system and a flat tax might well have a part to play in that.

Mark Twain is often attributed with the quotation that the only two certainties in life are death and taxes, and throughout the ages Governments have always cast around for things to tax. Over the years, we have had window taxes, beard taxes and brick taxes. I particularly like—only because it will give me the chance to mention that great son of Bury, Sir Robert Peel—the glass tax that was introduced in 1746, in the reign of King George II. At that time, glass was sold by weight and manufacturers responded to the tax by producing smaller and more highly decorated objects, often with hollow stems, which are today known as excise glasses. If anyone has ever wondered why the crystal glassmaking industry flourished in Cork and Waterford, it was because in 1780 the Government granted Ireland free trade in glass, which continued until 1825, when the tax in Ireland was restored. That led to a gradual decline in the industry until the glass tax was finally abolished by that great son of Bury, Sir Robert Peel, and his Government in 1845.

The complexity of today’s tax legislation is perhaps best illustrated by the fact that Pythagoras’s theorem can be set out in 31 words—I was told it was 24, but when I counted there were 31—the Lord’s prayer contains 66, the 10 commandments contain 179, the US declaration of independence contains 1,300 and the entire United States constitution, with all 27 amendments, apparently contains 7,818, but to get to grips with the United Kingdom’s tax system, one would have to purchase several weighty volumes such as Tolley’s tax manuals, setting one back several hundred pounds.

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[Rachel Reeves]

The hon. Gentleman mentioned earlier—or it might have been the hon. Member for Bury North (Mr Nuttall), but I am sure that they agree—that the increase in the income tax threshold means that fewer people are paying income tax. The good thing about reducing VAT is that it has a progressive effect, because people on lower incomes spend a higher proportion of their income on VAT than people on higher incomes. A reduction in VAT would therefore help to get money in the pockets of the people who most need it at the moment in a way that a cut in income tax would not.

[Robert Halfon]

I am grateful to the hon. Lady for being so generous in giving way. She said that one way to reduce petrol and diesel prices would be to cut VAT. Is it not the case that the majority of businesses get their VAT back? What most people want is a fuel duty cut, which is why I welcomed the Government’s cut in fuel duty in the last Budget and hope that they will not increase it next year.

[Rachel Reeves]

The reduction in VAT would put money in the hands of families. Of course, most people who run businesses are also part of a family, so they would benefit from the reduction in VAT. Labour’s five-point plan for jobs and growth also includes a national insurance holiday for small businesses taking on new employees, so that plan would help families and businesses up and down the country.